OPINION: Emerging markets have had their strongest start to the year since 2007, helped by the reopening of China and a weaker US dollar. Leading equity strategists are bullish.
Emerging market equities have stormed out of the blocks this year with the steepest rise in the MSCI Emerging Markets Index in 16 years and the strongest net equity inflows in two years.
At the heart of the bullish outlook for EM equities is the sudden and favourable reassessment of China’s growth prospects, notwithstanding US Secretary of State Antony Blinken will soon visit China, and China has a former ambassador to the US as its Minister of Foreign Affairs. They concluded that the consumption recovery in China will likely be faster and sharper than suggested by the data of other Asian economies over the past few quarters.First, China’s recovery will be driven by its huge domestic consumer market, while the small and open Asian economies are reliant on tourist spending to a large extent.
Analysis of US dollar correlations over the past 20 years by JPMorgan strategist Pedro Martins shows that a weaker US dollar has predominantly been associated with stronger EM equities.“EM equities’ historical median advance is [US dollars] 3.4 per cent for each 1 per cent weaker broad USD index,” he says.
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